통화정책

Abstract

Korea is an 'open economy' in all respects. Korea is well known for its active involvement in international trade for long, and has almost completely opened the financial market since the 1997~1998 crisis. This openness has served as an important factor to strengthen the Korean economy on the one hand, but also made Korea more reliant to external environment on the other. In fact, the Korean economy has been significantly influenced by the fluctuations of other countries' demand conditions, the global financial market, and international oil prices

No doubt that the 2008~2009 global crisis was a formidable shock to the Korean economy that is so susceptible to the changes in external environment. During the crisis, most of the advanced countries experienced negative growth, resulting in a great contraction in the demand for Korea's exports. The international financial market also experienced a terrifying panic, inducing a drastic capital outflow from Korea. The currency value collapsed and economic activities were shrunk. Indeed, a typical pattern of economic crisis was manifested in Korea. However, Korea overcame the global crisis more successfully than other countries, which was particularly contrasting to the 1997~1998 crisis when Korea miserably suffered despite the cruise of the global economy. What are the main factors that made the recent success possible?

The analyses of this book show that the progress in economic restructuring achieved since the 1997~1998 crisis was the most important factor for the successful recovery of Korea during the recent global crisis. Examples of such restructuring achievements include the improvement in financial soundness of firms and financial institutions, the maintenance of sound public finance, the expansion of foreign reserves, and the relatively mild housing price bubbles. These improvement in economic fundamentals of Korea played crucial roles in keeping the adverse global shocks from proliferating into the internal financial markets of Korea.

The flexible and timely responses of macroeconomic policies also greatly contributed to absorbing the shocks. In particular, the expansionary stances taken by fiscal and monetary authorities were quite contrasting to the contractionary policies during the 1997~1998 crisis. The foreign exchange policy that did not waste foreign reserves to defend a certain level of the exchange rate was also helpful for the early recovery of economic activities as well as the mitigation of the deflationary pressures from abroad.

Considering these, it seems difficult to conclude that external shocks are the most important factors to determine economic fluctuations of Korea. The two contrasting experiences --- the 1997~1998 crisis when the whole economy was melt down by relatively mild external shocks, and the recent crisis when the economic resilience was maintained despite the enormous global shocks --- loudly speak how crucial internal fundamentals are for maintaining economic stability in Korea.

In this respect, it is now re-emphasized that the sound pre-crisis fundamentals should not be impaired. Unlike many advanced countries, Korea did not experience serious de-leveraging or asset price collapse over the course of the recent crisis. This was clearly a factor that helped Korea to recover early, but will possibly become a factor that lays a burden on Korea's capacity to cope with a crisis in the long run. The potential risks of the Korean economy that we should be alert to at the moment seem to include still-increasing household debts, delayed restructuring of troubled firms and financial institutions, gradually expanding inflation, and social laxity about fiscal discipline.